France's Insee raises FY growth forecast to 2.3 pct vs 2.0 pct

Statistics office Insee said it now expects GDP growth in France over full-year 2006 at 2.3 pct, up from its previous estimate in June of a 2.0 pct rise, following a "surprise" spurt in second quarter activity. It said buoyant consumer spending is likely to offset a return to softness in industrial output until the end of the year. In a note on the economy, Insee maintained its previous outlook for 0.6 pct growth in the third quarter but lowered its estimate for the fourth quarter to 0.5 pct from 0.6 pct. The official government forecast is for a rise in GDP in 2006 of between 2.0 and 2.5 pct and Insee's forecast, putting it just above the mid-point of this range, reflects "robust but not outstanding growth", according to Eric Dubois, head of the economic department. In its report, Insee said a recovery in industrial output was the main factor in the 1.2 pct jump in second-quarter growth, but that "the return to a more moderate evolution in this sector is likely to mean less brilliant results (in the second half)." French industrial output fell 1.3 pct month-on-month in July confounding the consensus among economists for a rise of 0.4 pct. But Dubois said consumer spending is expected to sustain growth in the remainder of 2006: "With household demand showing no signs of losing momentum, being driven by purchasing power gains and a continuing decline in the saving ratio and with continuing positive growth in corporate investment, France should be able to count on a growth base of 0.5 to 0.6 pct per quarter (in the second half). He warned that the principal risk to this scenario is the risk of a slide in US household consumption economy adding that "there is no certainty" in the euro zone's capacity to resist such an event. Insee said it forecasts "stagnation" in manufacturing output in the third quarter after the 2.2 pct jump in the second and expects a slight 0.5 pct upturn in the final three months of the year. Turning to employment, Insee expects 160,000 non-farm jobs to be created in 2006, up from 77,000 in 2005 and predicted a decline in the jobless rate to 8.6 pct in December this year. At the same time, household spending is seen up 1.8 pct in the third quarter after a 1.5 pct rise in the second quarter.